Where Did All the Medicare Part D Plans Come From?

Strangely enough, nobody expected so many Medicare Part D plans to pop up. In fact, members of Congress were uncertain whether enough private insurers would offer enough Part D plans to provide competition, especially in rural areas.

Some insurance honchos even predicted that the industry wouldn’t be interested in offering any stand-alone plans — the kind that provide only drugs and no other health care — because such plans had never existed before and were regarded as unprofitable. (The CEO of one leading insurance company went so far as to call stand-alones a harebrained idea that just wouldn’t fly. Today, his company offers these plans in almost every state.)

So when the law was written in 2003, it included a clause allowing the federal government to provide its own fallback drug plan in any area where fewer than two private plans entered the market. In other words, Congress guaranteed that at least two drug plans would be available to everyone on Medicare.

At least two! How quaint that seems today, with scores of stand-alone plans (and Medicare Advantage plans that include Part D drug coverage) plying their wares in every locality. What happened? As it turned out, the insurance industry — drawn by large federal subsidies —saw Medicare prescription drug coverage as a money-making bonanza.

The result was much like the California Gold Rush of the mid-1800s, with insurers scrambling to carve out their shares of a huge new market. That’s how Medicare beneficiaries came to be confronted with a bewildering number of choices.

So will there always be so many plans? Some experts anticipate that over time the market will shake out, with only a few of the largest plans — those that have attracted the greatest number of enrollees — remaining in business. This scenario would reduce the choices but, with less competition, probably also increase enrollees’ costs.

Another potential turnaround is if Congress reduces or eliminates federal subsidies to plans, causing many of them to pull out of Part D. And yet another possibility, favored by some members of Congress and health policy experts, is to simplify plan choices by standardizing their designs — limiting them to maybe ten different options, each provided by a number of insurers at varying costs — in the way that Medigap supplemental insurance works today.

Meanwhile, until any of those scenarios happens (or some entirely different development occurs), it’s safe to say that the days of a Part D plan plethora won’t be over anytime soon.